Moving Forward to Value-based Contracting

For one supply chain executive, his IDN’s success rests on a strong procurement infrastructure.

Prior to joining Intermountain Healthcare (Salt Lake City, Utah), Joe Walsh had no intention of leaving his position at a Fortune 500 company. Indeed, his global sourcing and procurement leadership roles at non-healthcare-related multinational corporations appeared to point him toward a satisfying and successful career path. But, the loss of both his parents – four months apart, in two different hospital systems in Buffalo, N.Y. – convinced him there is much to be done to facilitate affordable patient care in the United States. “Unfortunately, neither of my parents received quality end-of-life care,” he says.

“These events changed my life in many ways. Most relevant, I decided to commit the rest of my career to healthcare, so that I could help shift the cost curves and quality curves of healthcare in the United States. I am not a clinician, but I certainly can contribute by helping hospitals and the supply chain become more integrated, efficient and effective.”

And so, about 4 ½ years ago, Walsh joined Intermountain Healthcare – initially to lead its non-clinical strategic sourcing team. In time, his responsibilities grew, and today he oversees sourcing/value analysis, contract management, purchasing and supplier relationship management, and system-wide linen and facilities management. As it turns out, a Fortune 500 background doesn’t hurt when it comes to steering a health system the size of Intermountain Healthcare. With 22 hospitals, 185 clinics, over 2,800 licensed beds and $1.3 billion in annual purchased supplies, services software and equipment, the IDN offered a progressive environment for him to embrace and help guide.

A solid procurement infrastructure
An efficient healthcare system depends heavily on a strong procurement infrastructure, notes Walsh. “As we strive to provide extraordinary care in all of its dimensions, it is critically important the procurement organization never becomes the weak link in our company’s value chain,” he says. Hence, he and his team engaged Accenture in January 2011 to conduct an assessment of the health system’s procurement infrastructure. “We then empowered a cross-functional team of employees to implement the recommended improvements to our skills, processes, technology and governance over a series of structured project phases,” he explains.

Upon wrapping up the initial implementation of the procurement transformation project, Walsh commended his team “for delivering such tremendous operational results while also diligently investing in our future.” Indeed, the project was challenging in that it “changed the health system’s definition of success; required additional competencies; and demanded more process rigor while the team continued its high levels of commitment to internal customer service,” he points out. “It has been extremely rewarding to help the entire supply chain organization get aligned around a vision for our future and then watch as our supply chain managers champion the change. The more I let go, the more I am impressed by the innovations and contributions by the talent around us.”

Excellence begets excellence, and the positive procurement transformation has led to continued progress at Intermountain Healthcare – particularly with regard to physician preference items, which represent nearly 50 percent of the health system’s total addressable spend, according to Walsh. “I [have been] very excited about the potential of exploring additional progressive strategies in collaboration with our clinical and physician leadership over the next couple of years,” he says. “Through the use of rigorous strategic sourcing, we can shift the cost curve for our system without dramatically reducing the product choices available to our physicians. We also know that can dramatically improve our utilization rates by reducing supply consumption patterns, reducing practice variation (related to supplies) and improving clinical efficacy of targeted products.

“Intermountain Healthcare is committed to evidence-based medicine, and we have the unique potential to link products, care process models and outcomes. These efforts will require an unprecedented level of physician alignment. We are eager to offer our caregivers the enhanced decision support resources they need to efficiently and effectively make the best supply decisions, so they can focus their undivided attention on delivering extraordinary patient care.”

Working with suppliers
Walsh agrees with those who believe that even the most accomplished supply chain team can’t move mountains without the support of excellent supply partners. “At Intermountain Healthcare, we are making a specific investment in our supplier partnerships,” he says. “We believe that supply partners should be considered an extension of our resources for the purpose of reducing our mutual supply chain cost and improving our outcomes. Therefore, the values that apply to our employees should also apply to our best supply partners. These values include trust, accountability, excellence and mutual respect. I can’t think of a single buyer-supplier relationship that wouldn’t benefit from these shared values.

“[That said], the most important quality for a supply partner to demonstrate is alignment with our company’s values,” he continues. In traditional med/surg categories, there are very few buyer-supplier relationships that have attained a partnership status, he notes, adding that “this is a direct result of misaligned incentives.” However, he has found that companies such as GE Healthcare, Covidien and a few others “are starting to ask the right questions and make appropriate investments.”
Intermountain Healthcare also has many non-clinical supplier partners who demonstrate the right values, Walsh points out. “Les Olson, a regional print management company, consistently aligns its objectives with Intermountain Healthcare’s objectives,” he says. “They hold themselves accountable to commitments, provide exceptional products and service, and treat every one of our 30,000+ employees with respect. Since we reciprocate these values in our relationship with Les Olson, [we have well established] mutual trust. While trust is understandably earned and built over time, we believe it is essential for both parties in a relationship to assume good intent as a guiding principle.”

From volume to value
Healthcare trends come and go, but as far as Walsh is concerned, two in particular are here to stay – at least for a while. “Our industry is at an inflection point, with the convergence of two mega trends,” he points out. “Value-based purchasing is shifting our focus from volume to value, and the evolution of the ACO models is shifting our focus from fee-for-service to population management. We believe healthcare organizations can’t successfully transition to assuming risk for the healthcare quality and cost for a population unless they have a robust ability to work as a system in an integrated way, maximizing efficiency in all areas of our work, effectively preventing illnesses when possible, appropriately managing chronic illness, and delivering consistent, evidence-based care to those with acute illness.

“Each of us in healthcare contracting needs to recognize this business model shift and develop contracting strategies that support both the delivery of care and prevention of illness,” Walsh continues. “We need to open channels between our best supply partners and our insurance providers, clinicians, physicians, administrators and business leaders. This effort will facilitate the collaborative development of wellness solutions and prevention strategies and will also enable improved clinical outcomes. We also need to transparently share information throughout the value chain to generate predictive insights so our companies can proactively manage disease states.”

In turn, providers must become a lower cost customer to their suppliers and collaborate with progressive suppliers to drive break-through process efficiencies, he explains. In addition, providers need to “jointly develop solutions that lead to improved clinical outcomes, improved labor productivity, reduced clinical practice variation, enhanced patient safety, improved patient satisfaction and enhanced physician satisfaction/alignment. Contracting strategies exclusively focused on the price-points are grossly inadequate. To quote Mary Beth Lang [vice president and supply chain executive] from UPMC, ‘Welcome to the new era of value-based contracting.’”